You are the owner of an ice cream shop that earns a profit most of the year except during the cold winter months. During the month of December, your rent and other fixed costs amount to a total of $200. If you remain open, your total variable costs (workers, ice cream cones, etc.) will amount to $300. If you would be able to sell 100 ice cream cones at $4 each during December, then
A) to maximize profits, you should remain open in December.
B) to maximize profits, you should shut down in December.
C) you will be able to avoid making a loss by shutting down in December.
D) you should go out of business in the long run if there is any single month in which you do not earn a profit.

Question

Quizplus · Accepted Answer

The total revenue from selling 100 ice cream cones at $4 each will be $400 (100 cones * $4 per cone = $400). 
To calculate the profit (or loss), we subtract the total costs from the total revenue: 
Profit = Total Revenue - Total Costs

Profit = $400 - ($200 + $300) 
Profit = $400 - $500 
Profit = -$100

Since the profit is negative, it means that the ice cream shop would be making a loss of $100 by remaining open in December. However, if the ice cream shop shuts down, it would not incur any variable costs of $300, which means that the loss would only be limited to the fixed costs of $200. Therefore, the ice cream shop can minimize its loss by shutting down in December. However, since the question asks for the best choice to maximize profits, the correct answer would be to remain open in December and try to increase sales to cover the fixed and variable costs. Although the ice cream shop may make a loss in December, it can make a profit during other months of the year and spread the costs and profits over the entire year.

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